India has the third largest number of unicorns, but it is way behind the US and China. It has the smallest R&D workforce, the smallest scientific manpower among the three countries, and has no tech firms of the size of Google, Microsoft, Amazon or Facebook. But even before Aadhaar and UPI, it had NSE, NSDL, Isro … Infosys non-executive chairman and co-founder Nandan Nilekani points out in a fireside chat with FE managing editor Sunil Jain at the FE CFO Awards 2020. Excerpts:
How far behind the US and China is India when it comes to tech power? After the first two phases where we took steps to modernise our banks and stock market, the third phase—in the last decade— was about putting in the digital infrastructure at the individual level … I joined the government in 2009 and Aadhaar now reaches 1.27 billion people. It is used to de-duplicate passports, driving licences, PAN cards, and now there is a proposal before the Election Commission of India to use it to de-duplicate voter IDs and make it easier for people to vote when they travel.
Today we have more than 700 million unique bank accounts linked to Aadhaar numbers. That, in turn, laid the foundation for the world’s largest direct benefit transfer programme. This also came in handy during the pandemic when the government transferred money into people’s bank accounts … we have demonstrated to the world the quality of our infrastructure.
The UPI (Unified Payments Interface) was another major innovation in India. By October 2016, we had reached about 1,00,000 users and then demonetisation happened. Today UPI does 2.3 billion transactions a month and it’s a spectacular success. I go to a vegetable vendor and he takes UPI payments. I think we have really managed to democratise payments. It is a very high volume, very low cost, small transactions payments system. There is nothing like this in the world.
On a scale of one to 10, if America is at 10 with Google, Facebook, etc., where are we? In areas like social media, search and e-commerce we don’t really have a great story. But in public digital infrastructure, we do have something which is world beating.
What are the next steps in India’s tech journey? With Aadhaar, etc., we have made things paperless, cashless and presence-less. I can sit in my house on my phone and do an Aadhaar KYC or a video KYC and open a bank account or buy a mutual fund. Being able to buy financial products digitally has dramatically reduced costs and improved efficiency. UPI has a feature called auto pay, in which you can set up business rules saying “debit my account every time I take an Ola or every day put Rs 10 in my SIP”. Once this rolls out, you will find that subscription-based services will gain huge traction. You will see more SIPs happening and SIPs are a huge source of money for the mutual fund industry. The combination of ASBA (applications supported by blocked amount) and UPI makes it very easy for me to apply for an IPO on my smartphone. Suddenly, millions of people can participate in a financial economy.
You are working on Beckn. What is that about? Beckn is an API being developed by a foundation set up by Pramod Varma, me and Sujit Nair who is the CEO. The idea is how do we unbundle monolithic applications in the sense that, if it is e-commerce you order the product on one site, it would be delivered by some other company and it may be paid by a third company. So, if you can unbundle this, people can build an ecosystem. So, I should be able to make a booking on my Ola or Uber and then I book the Metro ticket and in one step I can make the whole end-to-end travel. It has the potential to unbundle e-commerce and mobility just like UPI unbundled payments. It is a long way from where we are.
So, I can book a cab on my Ola or Uber app, but somebody who is not on Ola or Uber will be able to service it because Ola and Uber will be plugged into the Beckn API? Yes, but they have to adopt the protocol. I can also book on Ola and the Metro. It is basically unbundling and rebuilding in a way that is more democratic and allows interoperability across systems. What happened in the West was that you had closed loop winner-take-all models, where a few companies became dramatically powerful. We saw that in every sector. The kind of work we do in India is to enable the open loop model so there are not one or two winner-take-all; China has just two players in payments, and we have a model where every bank and every front-end distribution channel can participate. That creates healthy competition and innovation. At a more conceptual level, we are trying to create a more competitive economy by unbundling the ecosystems of digital commerce.
In the closed system, Ola or Uber is driving it. Who pushes this in the case of a Beckn? In the case of payments because it is regulated, the RBI had the foresight to do it. But it is also about government policy and interoperability; for example, the two exchanges and the two depositories. By law, the two depositories have to be interoperable. Airlines are a great example of interoperability. In big tech and hi-tech, things moved so fast that before the regulators could even design interoperability, people built these walled gardens.
So if the government says that an Ola or an Uber must have systems that are interoperable, we can completely change the game? It’s not just that. You need many players and there is a whole market-making effort. But broadly, yes, we should encourage interoperability like we have done in payments.
What is Open Credit Enablement Network (OCEN)? This is the third big thing in India after Aadhaar and payments, and iSpirt has done a lot of work on this; the issue is how we leverage data in a way that people can use their own data and it is also linked with the issue of winner-takes-all. All of us generate a lot of data in every transaction we do and that data is collected by a few companies and then they monetise it through advertising or whatever. But that data is ours.
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Is there a way to re-architect this in a way so that I as an individual or I as a small business can use my own data? We call that idea data empowerment.
The first implementation of that is in financial services, under the leadership of the RBI, but all the four to five regulators in the financial services are on board and they have defined a concept called consent manager or account aggregators, who sit between data providers and data users.
Suppose I am a small business and I want to get a loan. I ask my consent manager to get my GST record from the GST system, get my bank statement from the bank, get my TDS return from the income tax system, bundle all this data in an encrypted way and give it to two or three lenders. The lenders can decrypt this data and use their own algorithms and say this person is credit-worthy and then I get a digital loan. The small business is using its own data to get a loan.
OCEN is really the API. Let’s say I am running an accounting software company. I have a lot of customers and those customers have data, some of which is on my platform like invoices, balance sheets, etc. I can now ask OCEN to connect to five lenders so that the companies on my platform can go to those lenders using a simple API and get loans from them. It is all about reducing the transactional cost of making these systems work. It will take some time to put all these pieces in place. The credit again goes entirely to the government as it came up with the concept of account aggregators. So, suddenly we have a national infrastructure for data empowerment.
If other people benefit from it, how is the person who is creating the app or the software benefiting from it? They will make money on the transactions. We are talking of very high volumes and very low costs.
When you look at India’s R&D-spend or tech manpower, it is quite limited … We have a constraint, but investments will happen there. If you look at all the great companies of the world … GE does very sophisticated R&D in Bengaluru. So, a lot of R&D happening in the multinationals is happening in the Indian companies. It may not be at the scale of the US or China, but it is happening. We are seeing lots of companies doing deeptech using AI.
How do we compare with China? China is much bigger than India in everyday life. But I think the way to think about this is that India is the only young country in an aging world. China is going to rapidly age because of the one-child policy. When you have a young country in an aging world, the demographics are in your favour, and you will definitely be able to get to 5-6% growth. When the rest of the world is growing at 1-2% and you are growing at 5-6% continuously over 20 years, then you are going to do a significant catch-up.
So we are getting our formula right? Paytm is a big user of UPI and is worth $17 billion. PhonePe, which is now part of Walmart, is supposed to be worth a few billion dollars. BharatPe has just become a unicorn and has done an amazing job of spreading QR codes to retailers. Zerodha has become the largest online stock exchange.
On the digital infrastructure, which the government has laid, innovation is happening, competition is happening and billions of dollars of value are being created. The West invested public money on the internet, public money in GPS and that allowed the Ubers and Googles to succeed. So, we are creating something similar here.
The difference is that we are not creating monopolies, and we are helping the small guy. Today banks find it difficult to give loans to small companies because they can’t go and evaluate them. Now the evaluation is all digital and they can apply AI. All this stuff will make it easy for small businesses to get access to credit.
Look at FastTag, it came out of a report I did in 2010 at the request of the then road transport minister Kamal Nath, and today, thanks to our present road transport minister Nitin Gadkari, FastTag is ubiquitous. It is raising Rs 100 crore a day. It is incredible. We are now finally seeing all this technology actually impacting the lives of the people.
The stuff that is happening is a silent revolution and we don’t notice it because little bits are happening every day. But if you take a decadal view, it is an extraordinary revolution.